Changes at H-P under Hurd's hatchet were not all great

Commentary: Company culture changed again for the worse

NEW YORK (MarketWatch) -- The drama and mystery surrounding Mark Hurd's abrupt departure as chief executive of Hewlett-Packard Co. have shined an unflattering light on the company as we learn how he really changed H-P.

Wall Street loved his obsession with cutting costs, but employees did not. He brought even more major changes to the company's once paternalistic culture, much like his predecessor Carly Fiorina, who pretty much killed the old H-P Way.

With Hurd at the helm, H-P
HPQ, -2.52%
became an even tougher place to work, with even less emphasis on innovating anything new.

Some former and current employees said that under Hurd, H-P's once collegial workplace has changed again for the worse.

"He was profane, a bully, autocratic, threatening, demeaning, vindictive, and rude," wrote Chuck House, a veteran of H-P, in his blog. House is now executive director of Media X, a Stanford University industry affiliate research program on media and technology, and co-author of a 2009 book, "The H-P Phenomenon."

"Now we have people who are taking their lead from Hurd, who was supposedly a bastard in meetings and used foul language," said one long-time current employee who declined to be quoted by name. "Now we have a bunch of screamers and yellers."

The new H-P Way

That more hostile environment is a drastic shift from the H-P Way, which, granted, had its own problems. One facet of the company's old culture was management by consensus, where everyone involved in a project had to agree.

Employees have described the old approach as similar to a jury, if one person decided a product was not ready because of some small issue, it was held up. This could lead to product delays and an inability to make decisions. Fiorina worked on instilling a sense of urgency at H-P, and it was taken further under Hurd, who with his executive recruits made more autocratic decisions at lightening speed.

But employee morale, it appears, is once again as bad as it was during the Fiorina years. An H-P employee survey in April showed high levels of discontent. According to House in his blog, H-P's "Voice of the Workplace," a measure taken every five years, indicated that more than two-third of H-P employees would quit tomorrow if they had an equivalent job offer. "Not a raise, not a promotion, simply an alternative," House wrote. "That number never used to be in double digits." See H-P Phenomenon blog here.

"I think the surveys that have been leaked suggest that morale declined sharply under Hurd," said Rob Enderle, principal analyst at the Enderle Group. "Carly at least was focused on maintaining HP's image, but Hurd was not and instead focused mostly on the bottom line, to the detriment of the employees. So while Carly clearly cracked the environment, Hurd shattered it."

Innovation takes a holiday

H-P, which was once a great innovator in Silicon Valley, has also become less focused on creating anything new. Its founders Bill Hewlett and Dave Packard invented the audio oscillator in their famous Palo Alto, Calif. garage, which was used by Walt Disney Studios
DIS, -0.66%
to develop an innovative sound system for the 1940 movie "Fantasia."

Some of its better-known inventions that affected consumers more directly include inkjet printing technology, the first desktop scientific calculator and first handheld scientific calculator, which eliminated the need for the slide rule.

It is also known for pioneering many innovative management concepts still used today in corporate life, such as profit-sharing for employees, management by walking around and flex-time for workers. Employees used to be proud to work at H-P.

Now, one measure of how H-P has de-emphasized innovation is in its spending on research and development, which dropped over both Hurd's and Fiorina's tenures. It sunk to even lower levels under Hurd as a percentage of its growing revenue. In its fiscal 2009 annual report, its last under Hurd, H-P said "We remain committed to innovation as a key element of H-P's culture."

The numbers tell a different story. In fiscal 2009, which ended Oct. 31, the company's R&D budget was only 2.5% of total revenue. For fiscal 2005, Hurd's first six months at the tech giant, R&D was 4% of revenue. For fiscal 1999, the year Fiorina took over as CEO, research and development was 5.8% of H-P's total revenue.

Compare H-P's R&D spending with IBM Corp., its nearest competitor. IBM
IBM, -1.04%
still famous for its leading IBM Research, spent 6.1% of revenue on research, development and engineering in 2009, a year in which overall revenue fell.

So while its PC business had a major turnaround under Hurd and Todd Bradley, an executive vice president who is seen as one of the internal front runners for CEO, H-P has yet to launch a tablet or a similar product to compete with Apple Inc.'s
AAPL, -3.96%
popular iPad. That is just one example of the company's current lack of inventiveness.

Both Fiorina and Hurd turned H-P into a more generic company, more in tune with the current cutthroat times. Once again, Wall Street's and management's obsession with meeting quarterly numbers and growing earnings at all costs has wrecked the soul of a great American company.

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